Current through Register 2024 Notice Reg. No. 38, September 20, 2024
For audits conducted on or after January 1, 2003:
(a) The Division of Workers' Compensation
shall maintain and update annually a list of known adjusting locations of
California workers' compensation claims. The list will be based on information
provided to the Division in Annual Reports of Inventory submitted pursuant to
California Code of Regulations, title 8, section
10104, data submitted to the
Division's Workers' Compensation Information System pursuant to Labor Code
section
138.6, and any
other sources of information available. The list shall include all known
adjusting locations, located in or out of California, of insurers,
self-administered self-insured employers, and third-party administrators that
administer California workers' compensation claims.
(b) The Audit Unit shall select each
adjusting location from the list of adjusting locations for routine profile
audit review pursuant to Labor Code section
129(b)(1)
at least once every five years. Audit subjects may be selected in any order,
and routine audits may be scheduled by the Audit Unit in a manner to best
minimize travel expenses and utilize audit personnel efficiently.
(1) For routine audit subject selection
pursuant to Labor Code section
129(b)(1),
if the adjusting location includes claims of more than one insurance
underwriting company, self-insured employer, or third-party administrator at
the location and all claims at that location share the same local management,
the location will be considered as one audit subject.
(2) Eligibility under this subsection for
removal from the pool for routine audit subject selection shall not bar the
targeted selection of the audit subject pursuant to subdivisions (c)(2),
(c)(3), (c)(4) of this section, Labor Code section
129(b)(3),
or for investigation and/or audit pursuant to California Code of Regulations,
title 8, section
10106.5.
(c) Pursuant to Labor Code section
129(b),
the Audit Unit may conduct a targeted profile audit review or full compliance
audit of targeted audit subjects. An audit subject shall be selected for a
targeted audit based on the following target audit criteria:
(1) Prior audit results pursuant to Labor
Code section
129(b)(2)
shall be used independently as factual information to support selection of a
claims administrator for a return, targeted audit as follows:
(A) When a final audit report is issued, the
report will include a final performance rating. The final performance rating
will be calculated in the same manner as the performance audit review
performance rating as set forth in California Code of Regulations, title 8,
section 10107.1(c)(3),
except that the rating shall be determined based on audit findings from all
claim files randomly selected pursuant to section
10107(c)(1), (d)(1), and
(e)(1), and selected additional claim
files.
(B) If the audit subject's
performance rating calculated pursuant to section
10107.1(c)(3) or
(d)(3) fails to meet or exceed the worst 10%
of performance ratings for all audits conducted in the three calendar years
before the year preceding the year in which the current audit was commenced,
the Audit Unit will return for a targeted audit of the audit subject within two
years of the date the audit findings become final.
(C) In the final audit report, the Audit Unit
shall notify the audit subject that a return, targeted audit will be conducted
based upon its performance rating.
(D) Any appeal of the audit subject's
selection for a targeted audit based upon the audit findings must be made in
the same manner as an appeal of the Notice of Penalty Assessment as set forth
in California Code of Regulations, title 8, section
10115.1, and must be made within
seven days of receipt of the audit findings upon which the selection for
targeted audit is based.
(2) Audit subjects may be selected for
targeted audit based on final decisions or findings of the WCAB issued pursuant
to Labor Code section
5814 as
follows:
(A) The Division of Workers'
Compensation will regularly submit to the Audit Unit copies of WCAB decisions,
findings, and/or awards issued pursuant to Labor Code section
5814, and
reports of WCAB cases involving section 5814 violations.
(B) The Audit Unit will establish a list of
claims administrators identified for potential targeted audit based on the
documentation provided pursuant to subdivision (c)(2)(A). For each adjusting
location, the total number of decisions, findings, and/or awards issued
pursuant to Labor Code section
5814 shall be
compared to the total number of claims reported at that claims adjusting
location for the last year for that potential audit subject, as indicated on
the Annual Report of Inventory or the Self Insurer's Annual Report, or as
indicated in the data reported by the claims administrator to the Division of
Workers' Compensation as part of the Workers' Compensation Information System
pursuant to Labor Code section
138.6. The
Audit Unit may obtain data runs or claim logs from the claims administrator to
verify the accuracy of the claims reported.
(C) The Audit Unit may select for target
audit the highest-ranking subjects, based on the ratios of decisions, findings,
and/or awards issued pursuant to Labor Code section
5814 compared
to the number of claims reported at the adjusting location, from the list. The
Audit Unit may consider the results and recency of prior audits at the
adjusting location, the resources of the Audit Unit, and the need to conduct
routine audits in scheduling targeted audits. The Audit Unit is not required to
audit every claims administrator on the list, nor is it required to audit in
the order in which claims administrators appear on the
list.
(3) The Audit Unit
may also target audit subjects based on credible complaints and/or information
received by the Division of Workers' Compensation that indicate possible claims
handling violations, except that the Audit Unit will not target audit subjects
based only on anonymous complaints unless the complaint(s) is supported by
credible documentation. Complaints received by the Division of Workers'
Compensation may be kept confidential if confidentiality is requested by the
complaining party. In order to establish priorities for audits pursuant to this
subsection, the Audit Unit shall review and compile complaints and information
that indicate claims administrator adjusting locations are failing to meet
their obligations under Divisions 1 or 4 of the Labor Code or regulations of
the Administrative Director. The Audit Unit may contact a claims administrator
and request information necessary to determine the validity of a complaint.
Complaints and information alleging improper claims handling shall be tracked
and compiled into a list of claims administrators identified for potential
target audits in two manners:
(A) On the basis
of overall gravity and frequency of potential violations as measured by
assigned points:
1. Complaints or information
indicating possible violations of the kind which, if found on audit, would be
subject to the assessment of administrative penalties or issuance of notices of
compensation due shall be weighted on the basis of apparent severity of the
alleged violation. One point shall be assigned for each $100.00 in penalties
assessable under the corresponding violations in California Code of
Regulations, title 8, sections
10111 through
10111.2 of these
regulations.
2. The Audit Unit may
select for target audit the highest-ranking subjects, based on points assigned
compared to the number of claims reported at the adjusting location. The Audit
Unit may consider the results and recency of prior audits at the adjusting
location, the resources of the Audit Unit, and the need to conduct routine
audits in scheduling targeted audits. The Audit Unit is not required to audit
every claims administrator on the list, nor is it required to audit in the
order in which claims administrators appear on the list.
(B) On the basis of credible complaints or
information indicating claims handling for which a civil penalty may be
assessed pursuant to Labor Code section
129.5(e).
The Audit Unit may select for target audit the
highest-ranking subjects based on the ratios of complaints or information
regarding specific claims practices compared to the number of claims. In
considering the potential for specific poor claims practices, the Audit Unit
may consider the results and recency of prior audits at the adjusting location,
the resources of the Audit Unit, and the need to conduct routine audits in
scheduling targeted audits. The Audit Unit is not required to audit every
claims administrator on the list, nor is it required to audit in the order in
which claims administrators appear on the list.
(4) The Audit Unit may also select targeted
audit subjects based on data from the Workers' Compensation Information System
which indicates the claims administrator is failing to meet its obligations,
including, but not limited to, high percentages of possible violations compared
to other claims administrators. Possible violations include high percentages of
apparent late first and/or subsequent indemnity payments, either overall or by
class of indemnity, and/or high ratios of denied claims to indemnity
claims.
(5) The Audit Unit may also
target an audit subject for any of the following:
(A) Failure to produce a claim for the Audit
Unit within 30 days of receipt of a written request in a profile audit review
conducted pursuant to Labor Code section
129(b).
(B) Failure to pay or appeal pursuant to
California Code of Regulations, title 8, section
10115.1 any Notice of Compensation
Due issued by the Audit Unit.
(C)
Failure to comply with the Workers' Compensation Information System (WCIS)
requirements and timelines set forth in Labor Code section
138.6 or
California Code of Regulations, title 8,, sections
9700 et seq.
(D) The assessment of or a stipulation to a
civil penalty pursuant to Labor Code section
129.5(e).
(d) For targeted audits conducted in
accordance with the target audit criteria set forth in subdivision (c) of this
section:
(1) The Audit Unit shall send the
audit subject selected for targeted audit a Notice of Audit in accordance with
section 10107.1(a).
(2) For target audits, the Audit Unit may
randomly select claims pursuant to section
10107.1 of these regulations and/or
target claims on the basis that the Audit Unit has received information
alleging the existence of an improper claim handling practice, and for the
purpose of determining whether that practice occurred in those files. Companion
claim files or additional claim files as defined by these regulations may be
included for audit with the selected files.
(3) For all types of target audits and/or for
targeted claims in any audit, the Audit Unit is not required to audit an entire
claim file, but may audit only those parts of the claim file that pertain to
the complaint or to a specific type of possible violation(s).
(4) The Notice of Audit for a targeted audit
selected pursuant to subdivisions (c)(2) through (c)(5) of this section may be
appealed as follows:
(A) Within 7 days after
receiving a Notice of Audit the claims administrator may appeal its selection
for audit by filing with the Administrative Director and serving on the Audit
Unit a request for an appeals conference or a request for a written decision
without a conference.
(B) Within 21
days after the request for a written decision or an appeals conference is
filed, the appellant shall file with the Administrative Director and serve the
Audit Unit with a written statement setting forth the legal and factual basis
of the appeal, and including documentation or other evidence which supports the
appellant's position.
(C) If a
request for an appeals conference or a request for a written decision without
conference or if the written statement and documentation are not timely filed
and served under California Code of Regulations, title 8, section
10115.1(g)(1) and
(g)(2), the claims administrator shall be
deemed to have waived any issue concerning its selection for audit. The claims
administrator will be precluded from raising the issue at any subsequent
appeals of Notices of Penalty Assessment or Notices of Compensation
Due.
(D) Service and filing are
timely if the documents are placed in the United States mail, first class
postage prepaid, or personally delivered between the hours of 8:00 a.m. and
5:00 p.m., within the periods specified in section
10115.1(g). The
original and all copies of any filing shall attach proof of service as provided
in California Code of Regulations, title 8, section 10975.
(E) The appeal process shall be governed by
California Code of Regulations, title 8, section
10115.2.
1. New
section filed 12-30-2002; operative 1-1-2003 pursuant to Government Code
section
11343.4
(Register 2003, No. 1).
2. Change without regulatory effect
redesignating and amending former subsections (c)(8)(i)-(v) to subsections
(c)(8)(A)-(E) filed 5-1-2003 pursuant to section
100, title 1, California Code of
Regulations (Register 2003, No. 18).
3. Amendment of section and
NOTE filed 4-20-2009; operative 5-20-2009 (Register 2009, No.
17).
Note: Authority cited: Sections
59,
129,
129.5,
133,
138.6,
138.7 and
5307.3, Labor
Code. Reference: Sections
7,
53,
111,
124,
129,
129.5,
138.6 and
138.7, Labor
Code; and Sections
11180,
11181 and
11182,
Government Code.
